HealthEquity, Inc.

Good afternoon and welcome to the Health Equity Second Quarter 2026 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. Please note, this event is being recorded. I would now like to turn the conference over to Richard Putnam. Please go ahead.

Thank you, Gary. Appreciate it. I appreciate you hosting us today. Hello, everyone. Thanks for joining us this afternoon. As Gary said, this is Health Equity's second quarter of fiscal year 2026 earnings conference call. My name is Richard Putnam. I do Investor Relations for Health Equity. Joining me today is also Scott Cutler, President and CEO, Dr. Steve Nealeman, Vice Chair and Founder of the company, and James Lucania, Executive Vice President and CFO. Hello. Before I turn the call over to Scott for prepared remarks, we note that a press release announcing the financial results of our second quarter of fiscal 2026 was issued after the market closed this afternoon. These financial results include certain non-GAAP financial measures that we will reference today. You can find a copy of today's press release on our investor relations website, which is ir.healthequity.com. and it will also include the reconciliation of these non-GAAP measures with comparable GAAP measures. We also note that our comments and responses to your questions today reflect management's view as of today, September 2nd, 2025, and will contain forward-looking statements as defined by the SEC, including predictions, expectations, estimates, or other information that might be considered forward-looking. There are many important factors relating to our business, which could affect the forward-looking statements made today. These forward-looking statements are subject to risk and uncertainties that may cause our actual results to differ materially from statements made here today. We caution against placing undue reliance on these forward-looking statements, and we also encourage you to review the discussion of these factors and other risk that may affect our future results or the market price of our stock as detailed in our latest annual report on Form 10-K and any subsequent periodic reports filed with the FCC. We assume no obligation to revise or update these forward-looking statements in light of new information. With that out of the way, let's get on with this. Now over to Scott Cutler.

Thanks, Richard, and welcome, everybody. For the last 10 years or so, health equity has traditionally reported our second fiscal quarter of the day after Labor Day. For many, this day is the first unofficial day of the fall season, which means getting kids back to school, football, leaves changing colors, and the welcome relief of cooler weather. For Team Purple, it is the start of our busy growth season. But before previewing the preparations we have made, For our busy season, I will discuss the key metrics reflecting a strong start to fiscal 2026. Steve will provide details on HSA expanding provisions included in the budget bill passed in July, and Jim will detail Q2 financial results and our raised outlook for fiscal year 26. The team again delivered strong year-over-year growth and margin expansion across our key metrics in Q2, including revenue up 9%, Net income up 67%, adjusted EBITDA up 18% to an all-time quarterly company high that also included record gross margin of 71%, and near record adjusted EBITDA margin of 46%. HSAs grew 6%, CDB accounts grew 4%, driving total accounts up 5%, and HSA assets were up 12%. Health equity ended Q2 with over 17 million total accounts, including net CDB account growth of 255,000 year-over-year and just under 10 million HSAs, holding over 33 billion in HSA assets. HSA assets increased 3.7 billion year-over-year. The number of our HSA members who invest grew by 10% year-over-year, helping to drive invested assets up 23% to $16.1 billion. HSA cash reached $17 billion. The average balances of our HSA members grew by 6% year over year. From a macro perspective, after accounting for adjustments, the labor market is underperforming relative to expectations and softer than the pace of hiring in calendar 2024 and 2023. Despite this macro environment, Team Purple opened 163,000 new HSAs from sales in the quarter. Early indicators of this year's selling season show strong new enterprise wins, as well as retention of our existing clients. We also continue to see signs that more SMB companies are adopting HSA-qualified health plans, improved data analytics, combined with upsell or cross-sell opportunities, are helping our sales and relationship management teams deliver market-leading tools to help employers manage health care costs that continue to grow at two to three times the growth in wages. We are in a unique position to benchmark and recommend the most effective components of health plan plus HSA design, given the size of our data set and our expertise across client engagements. Powered by our analyzer tool and expert consultants, these recommendations can maximize health plan and tax savings for the employer while increasing healthcare affordability for their employees. We continue to see better benefits plan cost performance for clients with higher HSA adoption rates within our client base. We are pleased to see a number of clients utilizing health payment accounts, or HPAs, in connection with higher HSA adoption providing members with an added safety net when first starting their HSA journey. Team Purple also made great progress expanding our member-first secure mobile experience during the quarter while reducing our cost to serve. Since launching our award-winning expedited claims, which uses AI technology to automate claims adjudication, we have processed millions of dollars in reimbursements. while driving member satisfaction scores up and reducing processing costs. This is just the beginning of our AI journey and a new phase to our service modernization. We expect to further leverage agentic AI in our voice channel to drive greater automation and enhance the member experience, accelerating service delivery to our members and accurately addressing their needs and questions while reducing call wait times. These expanded AI service capabilities can potentially accelerate our efforts to further drive down our service costs. Over this past year, we have increased our service levels, reduced the fraud impacting our members, and launched expedited claims, which all enhance the members' experience, with 9% fewer teammates this year compared to a year ago. We also celebrated the completion of moving our V5 platform to be 100% cloud-based this quarter, resulting in 92% faster response times, five times more stability to the platform, and an 80% reduction in delays. We are very pleased with our team's efforts to drive down successful fraud attacks on our HSA members. Under the direction of Sunil Seshadri, our Chief Security Officer, and his dedicated security and fraud teams, we launched a number of added security measures, including greater adoption of our member-first secure mobile experience app, which now boasts 1.7 million downloads, to reduce direct fraud service costs from 3 million in Q1 to an exit run rate in Q2 near our goal of one basis point of total HSA assets per year. The first phase of additional PASCIE authentication capabilities was rolled out during the quarter and we anticipate that many of our members will authenticate through this Passkey technology by the end of the year. The introduction of Passkey will enhance trust and improve the login and authentication experience across our platforms, with the benefit to our members of a streamlined login process and no longer being required to remember passwords. We continue to see lower sequential fraud each month this year, as our controls take hold and more of our members move to a secure mobile experience. We are committed to continually updating our defenses as threats evolve. We are optimistic about the actions taken thus far and the continued strengthening and implementation of controls. These experience enhancements are part of HealthEquity's broader strategy shift to consumer experiences to secure our consumer-centric mobile app. As part of the Mobile First strategy, new members who sign up through their employer's open enrollment process will be able to set up their HSA account through the Health Equity mobile app. This process will be faster, seamless, and secured with industry-leading passkey technology. On the legislative front, the budget bill passed in early July delivered a number of wins for HSAs. Steve and our government affairs team did a remarkable job of educating our legislators and their staff about the benefits of HSAs and the growing demand for greater access to them from American families. Thank you, Steve, for your leadership in this effort. Please help us understand what this means for this year and beyond.